By CultureBanx Team
- Black taxpayers are audited 2.9 to 4.7 times the rate of non-Black taxpayers
- Black taxpayers accounted for 21% of EITC claims, but were the focus of 43% of EITC audits
There have been long-standing questions about whether the Internal Revenue Service uses its audit powers equitably. Now we have answers from IRS Commissioner Daniel Werfel who acknowledged in a letter to the U.S. Senate that Black taxpayers are audited at significantly higher rates and the agency is “deeply concerned.” So why are Black taxpayers audited 2.9 to 4.7 times the rate of non-Black taxpayers?
Why This Matters: Lawmakers urged the IRS to look into the racial disparities after a January report by a Stanford research team initially revealed the findings. According to the research team, the racial disparity in audit selection is driven by a set of internal IRS algorithms. Also, the IRS is currently undergoing a massive overhaul, thanks to an influx of funding, totaling $80 billion over a decade, from the Inflation Reduction Act.
While the IRS does not collect information about race from taxpayers, the report shows that the agency disproportionately flags tax returns that claim the Earned Income Tax Credit (EITC) for potential errors. The EITC is a program that assists low- to moderate-income workers. Black taxpayers accounted for 21% of EITC claims, but were the focus of 43% of EITC audits. Racial disparity in audit rates is most extreme for single Black men with dependents who claim the EITC. They are nearly 20 times as likely to be audited as a non-Black jointly filing (married) taxpayer claiming the EITC.
Situational Awareness: The study pointed out that there was a smaller but still significant inequity in audit rates between Black and non-Black taxpayers who do not claim the EITC. Bottom line, the IRS has focused its efforts on audits that are easier to conduct. As a result, disproportionately audited those who are historically disadvantaged instead of focusing on other taxpayers, including high net-work individuals who are likely to underreport larger sums.
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